Are you new to stock trading? Do you feel overwhelmed when people discuss fundamental stock analysis? Don't stress! We'll learn a simple and effective approach to understanding a company's true value. Doing so will help you make smarter decisions when trading stocks and safely grow your money.

Many new traders lose money because instead of performing fundamental analysis of stocks properly, they just follow tips or make guesses. Successful traders always use these tools before they buy or sell any stock. Let's learn how to do it step by step.

The Pillars of Fundamental Analysis

Before we start, let's understand what we'll learn today:

• Ratio Analysis - This helps us check if a company is financially healthy or "sick."
• Financial Statement Analysis - This shows us how much money a company makes.
• Qualitative Analysis - This tells us about the company's business, management, and future prospects.

Think of these as the fundamentals of stock analysis. A detective needs different clues for different parts of a case, and so traders will need all three analysis methods to find a company's true value.

1. Ratio Analysis

What is Ratio Analysis?

Ratio analysis is like giving a company a health checkup. When a doctor checks you, they look at your blood pressure, heart rate, and other things to find out if you're healthy. Similarly, we look at different sets of numbers to find out if a company is healthy or not.

The meaning of stock analysis fundamental is quite straightforward: we look at figures in a company's financial statements and make comparisons to find out how the company is doing.

Why Do We Need Ratio Analysis?

Imagine you want to lend money to a friend. What would you ask them first? You'd want to know if they have a job, if they earn enough money, and if they can pay you back. Ratio analysis helps us ask the same questions about companies before we invest.

Key Types of Ratio Analysis

Every trader should know these four main types of ratio analysis:

• Profitability Ratios - How Much Money Does the Company Make? ? These ratios show how well a company turns its sales into profit. A key one is the Net Profit Margin, which shows how much profit a company keeps after paying expenses.
  Net Profit Margin = Net Profit ÷ Total Sales × 100
  (This tells us how much profit the company makes from every ₹100 of sales.)
  Example: If a company has ₹10 profit from ₹100 in sales, its net profit margin is 10%. This means they keep ₹10 for every ₹100 they earn.
• Liquidity Ratios - Can the Company Pay Its Bills? ? These help determine if a company can pay its short-term debts. The Current Ratio (current assets divided by current liabilities) is a good indicator. Generally, a ratio over 1 means the business can pay its obligations.
  Current Ratio = Current Assets ÷ Current Liabilities
• Leverage Ratios - How Much Debt Does the Company Have? ? The Debt-to-Equity Ratio shows how much of a company's assets are financed by debt versus its own equity. Lower numbers are usually better, indicating lower risk.
• Valuation Ratios - Is the Stock Price Fair? ⚖️ The Price-to-Earnings (P/E) Ratio compares the company's stock price to its earnings, helping you see if the stock is overvalued or undervalued.

I recall my earlier days as an investor, when finding just one red flag—like a declining net profit margin or a really high debt-to-equity ratio—could have saved me from investing in the wrong stock. This is a core part of any fundamental stock analysis process.

2. Financial Statement Analysis

What is Financial Statement Analysis?

Financial statement analysis is like receiving a report card from school. Just as your report card has grades for different classes, a company's financial statements show how well it's performing in different areas.

Every company has three main financial statements:

• Income Statement - Shows how much money the company made or lost.
• Balance Sheet - Shows what the company owns (assets) and what it owes (liabilities).
• Cash Flow Statement - Shows how cash moved in and out of the company.

As you sharpen your skills, you can start recognizing trends, like steady increases in profits or out-of-control expenses. This is a crucial step in a comprehensive stock analysis.

Tools of Financial Statement Analysis

Beginners can use these simple tools:

• Horizontal Analysis: Compare numbers from different years to see if the company is growing or shrinking. Example: If sales were ₹100 crore last year and ₹120 crore this year, it grew by 20%. This is a good sign for fundamental stock analysis.
• Vertical Analysis: Look at each item as a percentage of the total. Example: If raw material cost is ₹30 crore out of ₹100 crore in sales, it's 30% of sales.
• Trend Analysis: Look at numbers over many years to spot patterns.

3. Qualitative Analysis

What is Qualitative Analysis?

While the first two methods focus on numbers, qualitative analysis is about understanding the company's story. It's like being a detective who looks for clues that aren't numbers. This type of stock analysis is critical for finding long-term value.

When doing qualitative analysis, we look at:

• The company's business model - how does it make money?
• The management team - are they experienced and trustworthy?
• The competitive advantage - what makes the company unique? (e.g., strong brand, unique product)
• The industry outlook - is the industry growing or shrinking?

How Dhanarthi Makes Getting All Three Analysis Reports Simple

Now that you understand the different components of fundamental analysis of stocks, let me show you how to get all these reports easily using Dhanarthi's platform. Instead of doing all calculations and research manually, you can get professional analysis reports in just 3 simple steps:

Step-by-Step Guide to Use Dhanarthi Platform

1. Sign Up or Login to Dhanarthi
• Go to the Dhanarthi website.
• Create your free account or log in. The platform is designed for both beginners and experts.
2. Search and Select Your Stock
• Click on the "Stocks" tab.
• Use the search box to find any company you want to analyze by name or stock symbol.
3. Get Complete Analysis Reports
   Once you select a company, you will see three main sections:
• Ratio Analysis Report: Shows all important financial ratios with easy-to-understand scores.
• Financial Analysis Report: Displays the company's financial health and growth rates.
• Qualitative Analysis Report: Provides a summary of the company's business, management, and competitive position.

Conclusion

Ratio analysis, financial statement analysis, and qualitative analysis are the three pillars of successful stock analysis fundamental. Like a three-legged stool that needs all three legs to stand properly, good trading requires all three analysis methods to be successful.

Start your journey today by learning these basics. Remember, you don't need to become an expert overnight. The difference between successful traders and those who lose money is simple: successful traders analyze before they invest, while others just guess and hope for the best. Platforms like Dhanarthi provide you with all the tools and resources you need to master the fundamentals of stock analysis.